Construction Ireland Frequently Asked Questions
What is a Joint Venture Agreement?
A Joint Venture is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. It must be noted that some loss of control or identity could arise due to this Agreement, however the long-term goal must always be kept in sight. In essence, a joint venture is for a specific purpose, and each party can thereafter go their separate ways. An exit strategy should be looked at an early stage to ensure that both parties can move on once there is completion of the Joint Venture project.
Tax considerations are vital when it comes to joint ventures and should be one of the primary considerations. The main consideration is of course whether the parties can act together, and dispute resolution should always be incorporated into any agreement to alleviate any issues that might arise as between the parties. When it comes to joint ventures it should always be remembered that today’s competitors could be tomorrows partners.
What are the Building Regulations?
The building regulations apply to the design and construction of a new building (including a dwelling) or an extension to an existing building. They set a minimum level of requirement for construction. The aim of the building regulations is to provide for the safety and welfare of people in and about buildings. Areas covered by the Building Regulations include Structure, Fire Safety, Site Preparation, Drainage and waste Disposal, Access and Use, etc. Building owners, designers and builders are legally bound by the regulations and where undertaking works must ensure that the appropriate measures are taken to enable certification of compliance.
What is Building Regulation Certification?
Failure to comply with the building regulations is an offence regardless of any form of certification. Statutory Certification of buildings was provided for under the 2014 Building Regulations. It would seem as if this was a direct knock on affect from the Priory Hall apartments issue in Dublin. Houses and apartments where a commencement notice for works is lodged on or after 1 March 2014 must comply with the new Regulations. This procedure requires the use of an ‘assigned certifier’, who provides an overall certificate, which is filed by the local authority. That certificate is conclusive confirmation to the local authority that the building complies with the building regulations. A Statutory Certificate of Compliance on Completion, together with relevant compliance documentation and the Inspection Plan as implemented is lodged with the Building Control Authority before the building is occupied or used. In the case of commercial buildings and apartment blocks, a Disability Access Certificate and a Fire Safety Certificate must be obtained from the local building control authority.
On a side note it is important to note that the certification under the Building Regulations is not an undertaking to the Building owner, who has no recourse to deficient certification.
The new Building Regulations have no impact on planning permissions, and the standard planning documents will still be required in all transactions.
What is Project Finance:
The financing of development and construction has evolved since the global financial crisis. Prior to the economic crash in 2007, the main source if funding was provided for through banks. This funding was provided for at an early stage, and for some time was provided on the understanding that the asset value was going to increase only. Since then the funding model has varied greatly. Although lending institutions have begun lending again, there lending is far more restricted and averages in or around 50-65% of development costs. Less funding is provided for in relation to site acquisition which might not yet have the requisite planning or consents.
Non-equity funding now provides a major role in project finance. Non-equity funding is essentially non-bank finance. They include hedge funds, private equity investors, insurance companies, etc. There addition to the market has provided new avenues in which to obtain finance, and also the type of finance which can be obtained- Mezzanine Finance: a hybrid of debt and equity financing that gives the lender the right to convert to an equity interest in the company in case of default/ A non-amortizing loan: a type of loan in which payments on the principal are not made until a lump sum is required.
The benefits of this new type of project finance is the flexibility which it provides to all parties. It is usually based on commercial terms which will allow the asset to reach its main objective and thereby ensuring that all parties benefit. Banks are also more risk adverse when it comes to investment, whereas Private investors are also more aggressive in viewing the profit lines in an investment. This will allow for riskier transactions to obtain funding.
What is Blended Finance:
This type of finance involves both bank finance and private investor finance. Blended finance can assist in mitigating early-entrant costs or project risks and is used to assist the re-balance of risk-reward and supplements bank lending. The increasing use of blended finance is indicative of an expanding Irish lending market.
There are however same basic issues associated with blended finance. The outstanding problem relates to the equity stake held by all parties. Blended Finance allows for ‘senior’ and ‘junior’ debt, which equates to the level of security held by each party. Major concern is around the level of security for any junior debtor. They could find themselves in a position whereby their original investment into a project is now lost, due to a ‘senior debtor’ stepping in and enforcing their security. The original investor must also seek to protect their investment, however in certain circumstances no original investment can be created without the use of blended finance and as such there is of course a risk element involved.
Private Lenders will never fully replace traditional Lending Institutions in the market, however due to the recent success, we are likely to see continuing use of blended finance solutions which will complement and supplement traditional bank lending, creating a more diverse debt landscape in Ireland.
What is Adjudication and does it apply to me?
Adjudication is a Dispute Resolution process whereby an independent neutral party known as an Adjudicator, decides the issues in a dispute within a predetermined time frame. It is provided for in the Construction Contract Act 2013 and applies (with the consent of both parties) to qualifying construction contracts entered into after 25th July 2016. Under the Act, adjudication on a strict interpretation applies to payment disputes only, but payment disputes can include time and quality issues also and as such may be applicable in a wider scenario. There is also Contractual adjudication which can be included in formal contract as between parties.
Adjudication most notably is a very short process and is also binding on all parties. However, a decision on Adjudication can always be referred onwards, and as such may not be the final determination of the issue between the parties.
Adjudication under the Act will automatically apply where the contract value is over €10,000, or where it relates to a ‘Dwelling’ which is over 200 sqm and is not intended to be a principle private residence. It will also apply where the contract is not evidenced in writing (however other sperate items must be in place).
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